It’s well known that when the cost of housing and shelter consumes a larger share of income, households adjust by reducing their consumption of other goods and services.
But research from Canada and elsewhere suggests that other decisions are affected, too, most notably those surrounding when (and whether) to have children.
The impact of rising housing prices varies by location and the homeownership status of the family in question and there are conflicting forces at play.
On the one hand, an increase in shelter costs makes the space needed for child-rearing more expensive, resulting in a negative impact on fertility. Conversely, those who own their own homes benefit from increasing prices because of the wealth effect. They can extract home equity to invest in child-rearing and hence, may experience a positive impact on fertility.
Fertility decisions have long been a subject of intellectual curiosity. Gary Becker, a Nobel laureate recognized for his research on the economics of families, posited that children are a “normal good.” In the jargon of economics, a normal good is one that sees its consumption increase with rising incomes. If children were a normal good, one would expect to see fertility rates to climb with incomes.
Empirical evidence, though, suggests otherwise. The number of live births per woman in childbearing age is lower for high-income countries. Also, the average number of births per woman declines with an increase in incomes over time.
What Becker suggested was more nuanced. With rising incomes, he implied, parents will not necessarily have more children, but instead, spend more on children to improve their quality of life.
But what happens when fixed budgets mean shelter costs must compete with child-rearing costs? Should one expect a decline in fertility rates following a rapid increase in housing prices?
Professors Jeremy Clark and Ana Ferrer, in a paper published this year, explored the effect of house prices on fertility in Canada. They found tenuous support for the relationship. In cases where a woman who owned a home remained within the same real estate district (i.e. a region governed by the same real estate board) for the past six years, a $10,000 increase in average housing prices the year prior raised the odds of a woman giving birth by 6.7 per cent. The impact of an increase in house prices was statistically more robust for women aged between 23 and 37.
But when they included homeowners who relocated, the authors found that higher house prices were “not significantly associated with the likelihood of home-owning women giving birth.” Moreover, changes in housing prices had no discernible impact on the fertility of renters.
A paper published in 2014 in the Journal of Public Economics reached similar conclusions for U.S. housing markets. The authors found that higher home prices accompanied with homeownership rates exceeding 30 per cent had a net positive home equity effect. The increase in fertility was more pronounced for markets with higher homeownership levels.
Unlike Canada, where fertility decisions of renters were unaffected by increasing housing prices, the U.S. study found “a negative price effect of house prices on current period fertility of non-home-owners.”
Another study reported similar results in 2013 in the Review of Economics and Statistics. The study observed a positive impact on the likelihood of a woman having a child from an increase in housing price. The study also found evidence for an increase in housing wealth raising total (completed) fertility. This implies that not only the timing of pregnancy is affected, but that housing price changes also affect the number of children a woman may give birth to.
The total fertility rate in Canada has declined from 3.8 births per woman in 1960 to 1.6 births in 2016. This has contributed to the ageing of the Canadian population, where the 2016 Census informed that seniors over the age of 65 outnumbered children aged 14 or younger.
With most Canadians being homeowners and future housing prices expected to rise, the changes in housing prices are likely to have a positive effect on fertility decisions in Canada.
Murtaza Haider is a professor of Real Estate Management at Ryerson University. Stephen Moranis is a real estate industry veteran. They can be reached at www.hmbulletin.com.
